An estimated 13.70 million to 13.90 million new vehicles were sold last year, representing a year-over-year decline of 8% to 9%. However, electric vehicles saw more buyers as sales accounted for 5.8% of all new cars sold in 2022, up from 3.1% in 2021. Although electric vehicles are expected to find more buyers this year, I think the fundamentally weak EV stock Nikola Corporation (NKLA) is best avoided now.
Let me explain the reasons why NKLA may see further downside.
According to S&P Global Mobility, electric vehicle sales rose 36% year-over-year in 2022. However, electric vehicle sales this year face the challenges of a U.S. recession, the end of China’s subsidies, the energy crisis in Europe, and high inflation.
In the fourth quarter, NKLA’s loss per share of $0.46 was $0.11 lower than analyst estimates. However, its revenue missed the consensus estimate by 80.4%. NKLA’s CEO Michael Lohscheller said, “During the fourth quarter, we strengthened our commercial and sales operations, which is expected to lead to increased sales and accelerated customer deliveries.”
“As a whole, we made significant progress on both the truck and energy infrastructure fronts. The advances we have made on battery charging and hydrogen solutions with strategic partners, and the unveiling of our hydrogen solutions with strategic partners, and the unveiling of our hydrogen mobile fueler under the HYLA brand, will allow Nikola to provide fully integrated mobility solutions to customers for both the BEV and FCEV,” he added.
In early 2022, NKLA announced that production of its Tre semitruck began in late March, and the first 11 trucks were shipped to dealers in April. The company had guided to deliver between 300 and 500 Tre semitruck in 2022.
However, the company later trimmed that delivery target to between 255 and 305 trucks. The company manufactured 258 trucks in 2022. For fiscal 2023, NKLA expects to deliver between 250 and 305 battery-electric trucks. The company also expects to manufacture 125 to 150 hydrogen fuel-cell trucks this year.
Earlier this month, Lion Electric (LEV) filed a civil lawsuit against NKLA. In the filing made at the U.S. District Court of Arizona, LEV alleges that NKLA tried to steal its customers after breaking its battery pack purchase agreement.
NKLA’s stock has declined 71% in price over the past nine months and 77.6% over the past year to close the last trading session at $1.64.
Here’s what could influence NKLA’s performance in the upcoming months:
Disappointing Financials
NKLA’s loss from operations widened 20.1% year-over-year to $195.42 million for the fourth quarter ended December 31, 2022. The company’s adjusted EBITDA loss widened 83.5% year-over-year to $166.79 million. Its non-GAAP net loss widened 93.3% over the prior-year period to $180.61 million. Also, its non-GAAP loss per share widened 60.9% year-over-year to $0.37.
For the fiscal year ended December 31, 2022, NKLA’s loss from operations widened 7.9% year-over-year to $748.68 million. The company’s adjusted EBITDA loss widened 47% year-over-year to $450.20 million. Its non-GAAP net loss widened 55.9% over the prior-year period to $491.25 million. Also, its non-GAAP loss per share widened 40.5% year-over-year to $1.11.
Mixed Analyst Estimates
Analysts expect NKLA’s EPS for fiscal 2023 and 2024 to remain negative. Its revenue for fiscal 2023 and 2024 is expected to increase 198.5% and 237.5% year-over-year to $151.70 million and $511.95 million. It failed to surpass the Street EPS estimates in three of the trailing four quarters.
Stretched Valuation
In terms of forward EV/S, NKLA’s 6.96x is 330.2% higher than the 1.62x industry average. Its 2.96x forward P/B is 26.3% higher than the 2.35x industry average. Likewise, its 5.99x forward P/S is 362.5% higher than the 1.30x industry average.
Poor Profitability
NKLA’s trailing-12-month Return on Common Equity is negative compared to the 13.67% industry average. Likewise, its trailing-12-month Return on Total Assets is negative compared to the 5.20% industry average. Furthermore, the stock’s 0.05x trailing-12-month asset turnover ratio is 94.2% lower than the industry average of 0.79x.
POWR Ratings Reflect Bleak Prospects
NKLA has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NKLA has an F grade for Value, in sync with its stretched valuation.
It has an F grade for Stability, consistent with its 1.51 beta. Its poor profitability justifies its F grade for Quality.
NKLA is ranked #54 out of 58 stocks in the Auto & Vehicle Manufacturers industry. Click here to access NKLA’s Growth, Momentum, and Sentiment ratings.
Bottom Line
NKLA’s stock is trading below its 50-day and 200-day moving averages of $2.35 and $3.96, respectively, indicating a downtrend. NKLA just managed to fulfill its production target for fiscal 2022 as it crawled past the lower end of the guidance.
The company has set similar production targets for the current year and expects to produce 125 to 150 hydrogen fuel cell trucks. Although these targets look promising, investors must be careful as the company has previously failed to meet its expectations. Moreover, with the first deliveries of Tesla, Inc.’s (TSLA) Semi now starting, NKLA is expected to face tough competition.
Given its disappointing financials, stretched valuation, and poor profitability, it could be wise to avoid the stock now.
Stocks to Consider Instead of Nikola Corporation (NKLA)
The odds of NKLA outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these stocks with A (Strong Buy) or B (Buy) ratings from the Auto & Vehicle Manufacturers industry instead:
Stellantis N.V. (STLA)
Mercedes-Benz Group AG (MBGAF)
Rolls-Royce Holdings plc (RYCEY).
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NKLA shares were trading at $1.63 per share on Thursday morning, down $0.02 (-0.91%). Year-to-date, NKLA has declined -24.54%, versus a 1.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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